The Marcus Corporation (MCS) Q4 2019 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to the Marcus Corporation Fourth Quarter Earnings Conference Call. My name is Josh, and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions] As a reminder, this conference is being recorded. Joining us today are Greg Marcus, President and Chief Executive Officer; and Doug Neis, Executive Vice President, Chief Financial Officer and Treasurer of The Marcus Corporation. At this time, I'd like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

Thank you very much and welcome everybody to our fiscal 2019 fourth quarter and year end conference call. Bear with me as once again I need to begin by stating that we plan and making a number of forward-looking statements on our call today. Forward-looking statements could include, but not be limited to statements about our future revenues and earnings expectations; our future RevPAR, occupancy rates and room rate expectations for hotels and resorts division; our expectations about the quality, quantity and audience appeal of film products expected to be made available to us in the future; expectations about the future trends in the business group and leisure travel industry and in our markets; our expectations and plans regarding growth and the number and type of our properties and facilities; our expectations regarding various non-operating line items on our earnings statement; and our expectations regarding future capital expenditures. Of course, our actual results could differ materially from those projected or suggested by our forward-looking statements. Factors, risks and uncertainties, which could impact our ability to achieve our expectations, are included in the Risk Factors section of our 10-K and 10-Q filings, which can be obtained from the SEC or the company. We'll also post our Regulation G disclosures when applicable on our website at www.marcuscorp.com. So with that behind us, let's talk about our fiscal 2019 fourth quarter and our completed fiscal year. Once again we had multiple non-recurring items involved this year and last year's report results that complicate comparisons to the prior year. So we attempt to get those numbers on a more apples-to-apples basis in our press release and explain each of them as this call proceeds. But with all said and done operating results were down versus last year for both the quarters and year for a variety of reasons that we will discuss on our call today. As our press release notes however, thanks to the Movie Tavern acquisition and a solid quarter and year for our hotels fiscal 2019 fourth quarter and fiscal year revenues were record for both divisions as well as the company as a whole. We also reported record adjusted EBITDA during both the fourth quarter and fiscal year as well. As is our usual practice before we get to Greg's comments in the quarter and year I'm going to take you through some of the detail behind the numbers both on a consolidated basis and for each division. So not much to say about the line items below operating income, investment income increase compared to last year during both the quarter and the year due primarily increases in the value of marketable securities held by the company meanwhile interest expense decreased during the quarter and year due primarily to reduce borrowing levels. These changes and the other line items were relatively minimal. Income taxes on the other hand did have some non recurring activity last year that definitely impacted our comparisons net earnings. Last year during the fourth quarter we benefited from a $1.2 million one-time reduction and deferred tax liabilities related to a change in tax accounting method made last year and for the full fiscal year that total benefit was over $1.9 million during fiscal 2018. As a result we had an unusually low fourth quarter and full year effective income tax rate last year. Our fiscal 2019 effective income tax rate was 22.7% compared to 19.7% last year, however you if you exclude that $1.9 million non-recurring benefit last year our effective income tax rate last year was 22.7% the same as this year. Shifting gears away from the earning statement for a moment our total cash capital expenditures during fiscal 2019 came in right in the middle of the range we shared with you last quarter totaling approximately $64 million compared to approximately $59 million last year. Now that 2019 number does not include the approximately $30 million cash component of our Movie Tavern acquisition. Approximately $32 million or half of our spend during fiscal 2019 was incurred in our theater division relating primarily to the new theater that we opened and are continuing DreamLounger seating projects and premium large format conversions that we referenced in our press release. The other half, the other $32 million of capital expenditures and our total hotels resorts division during fiscal ‘19 were primarily related to the two major renovation projects at the Saint Kate and the Hilton Madison plus various normal maintenance projects. As we look towards capital expenditures for fiscal 2020 we're currently estimating that our capital expenditures may be in the $65 million to $85 million range. We're currently estimating approximately $45 million to $60 million for our fiscal 2020 capital spend in our theater division with another $20 million to $25 million earmarked for our hotels and resorts division. As is always the case at this point in the year the actual fiscal 2020 capital expenditure is certainly could vary from this preliminary estimate and Greg will briefly discuss our spending plans in his prepared remarks. I will now provide some financial comments on our operations for the fourth quarter and fiscal year and I'll start with our theaters. A reported admission revenues increased 18% and our concession revenues increased 37.9% during the fourth quarter compared to last year but when you exclude from the numbers the acquired Movie Tavern theaters and the new movie Tavern theater that we opened during the fourth quarter you'll find that our comparable admission and concession revenues decreased 5.1% and 4.6% respectively. For the full fiscal 2019 full year once again excluding the Movie Tavern theaters our comparable admission and concession revenues decreased 5.5% and 2.4% respectively due in large part to the industry's challenging first quarter. According to data received from ComScore and compiled by us to evaluate our fiscal 2019 fourth quarter and fiscal year results United States Box Office receipts excluding a handful of new builds for the top 10 circuits decreased 5.5% during our fiscal 2019 fourth quarter and decreased 6% for the comparable 52 week fiscal year. As a result we believe our admission revenues for comparable theaters during the fourth quarter of fiscal 2019 outperformed the industry average by 0.4 percentage points with our fiscal 2019 full-year results ending up 0.5 percentage points ahead of the industry. Now we did not include the performance of our Movie Tavern theaters in the comparison to the industry because we do not own a Movie Tavern during fiscal 2018. Based upon data available to us however from the previous owner we believe that our Movie Tavern theaters outperformed the industry by approximately 7 percentage points during the 11 months that we owned them during fiscal 2019. Greg will address the out performance of both of our legacy theaters and our Movie Tavern theaters during his prepared remarks. Attendance at our comparable theaters was down 9.9% and 8.6% respectively during the fourth quarter and fiscal 2019 full year compared to the same period last year due to a weaker film slate. The decreases in attendance were partially offset by increased per capita revenues. Our average admission price at our comparable theaters increased 5.4% during the fourth quarter and 3.4% during 2019 compared to the prior periods. We're also pleased to report an increase in our average concession and food and beverage revenues per person at our comparable theaters of 5.9% for the fourth quarter and 6.9% for all of fiscal 2019. Our investments in non-traditional food and beverage outlets continue to contribute to higher per capita spending and if you want to add Movie Tavern to the numbers I'll tell you that our average concession in food beverage revenues per person increased by nearly 28% this year. Our theater division operating income and operating margin declined during the fourth quarter in fiscal 2019 compared to the same period last year due to the negative leverage that occurs when attendance declines. Through the significant investments we and others in this business have made in our theaters over the last five years we have higher fixed costs such as rent, depreciation and amortization and a certain percentage of our labor expenses due in part to our increased number of new food and beverage outlets in our theaters. As a result it's more difficult to remove cost when attendance decline like it did in the fourth quarter and full year fiscal 2019 and operating margins are more likely to decline when that happens. In addition as we discussed all year our operating margin also the client as expected due to the inclusion of the Movie Tavern operating results. Our Movie Tavern theaters have a lower operating margin than our legacy theaters due to the fact that all 22 acquired theaters are least rather known and because a larger portion of Movie Tavern revenues are derived from the sale of in theater food and beverage as food and beverage labor costs are generally higher for those items compared to traditional concession items. Of course you've heard us say many times before we take dollars in the bank now percentages and lastly our press release and attached table of reconciling net earnings to adjusted net earnings highlighted for you several non-recurring items that impacted our fourth-quarter and fiscal 2019 theater results. During our fiscal 2019 fourth quarter we recorded a $1.9 million impairment charge related to one specific theater location and we incurred approximately $400,000 of pre-opening expenses related to the new Movie Tavern theaters that we opened during the quarter. Those items plus nearly $2.1 million of non-recurring acquisition and pre-opening expenses related to the Movie Tavern acquisition reported in earlier quarters resulted in total non-recurring items in theater division during fiscal 2019 of nearly $4.4 million or $0.10 per share. During our fourth quarter last year we also had some non-recurring acquisition and pre-opening expenses totaling approximately $1.7 million. Shifting to our hotels and resorts division our reported results for fiscal 2019 were obviously impacted by the fact that we closed the Intercontinental Milwaukee after the first week in January and in order to begin a major renovation that transformed this hotel in the Saint Kate, The Arts Hotel, we reopened the new hotel in June and as expected we also incurred initials startup losses at this hotel during the third and fourth quarters as we compared a newly opened independent hotel to the results of a stabilized branded hotel the year before. As previously reported we also were undergoing a major renovation at our Hilton Madison hotel during the first half of fiscal 2019, so that further negatively impacted our reported results for the full year fiscal 2019 from this division. As you saw on the press release we're reporting slightly increased hotel revenues and a decreased operating loss during fiscal 2019 fourth quarter and we're reporting increased revenues and decreased operating income during fiscal 2019 compared to this last year's same periods. Now when you exclude the closed former intercontinental now the Saint Kate hotel and cost reimbursements which have nothing to do with our own hotels whatsoever from our results you'll find that comparable hotel revenues actually increased 2.6% during both the fourth quarter and fiscal 2019. Our operating income was obviously impacted in both years by the Saint Kate conversion. This year's numbers were impacted by the aforementioned closing of the old hotel and the subsequent pre-opening expenses and initial startup losses of the new hotel. Last year's report results in the fourth quarter were negatively impacted by approximately $500,000 of pre-opening expenses and approximately $3.7 million of accelerated depreciation. So if you just look at our hotel results, hotel results excluding this hotel altogether we find that our fiscal 2019 full-year operating income for our remaining hotels actually increased by approximately $1.2 million or 7.6% during fiscal 2019 compared to fiscal 2018. These numbers are despite some negative impact at our Hilton Madison as well through the aforementioned renovation in the first half of the year. As the table the press release highlights non-recurring pre-opening expenses and additional start-up losses at the Saint Kate negatively impacted our reported results by approximately $1.3 million or $0.03 per share during our fourth quarter and $6.8 million or approximately $0.16 per share during fiscal 2019. Now [indiscernible] when I use these terms when I refer to pre-opening expenses I'm primarily talking about direct expenditures incurred in conjunction with the six-month closing and subsequent reopening of the hotel. When I refer to an initial startup losses I'm addressing the kind of Delta that has occurred as expected between the operating performance of the brand-new independent hotel compared to a stabilized branded hotel last year and Greg will expand on this in his comments. The biggest contributor to our same-store increase in revenues were increased food and beverage revenues during our fourth quarter and full year fiscal 2019. Our total revenue per available room or RevPar for our seven comparable owned hotels excluding the Saint Kate increased 1.3% during the fourth quarter and 1% during the fiscal 2019 compared to last year's same periods. But even those numbers are a little deceptive because as I mentioned we also had one hotel the Hilton Madison significantly impacted during the first half of the year due to that major renovation. When you strip that hotel out our true comparable hotels for the full year actually reported an increase in RevPar of 2.4% for fiscal 2019 compared to fiscal 2018. As we've noted in the past our RevPar performance did vary by market and type of property. Now according to data received from Smith Travel Research and compiled by us in order to compare our fiscal quarter results comparable upper upscale hotels throughout the United States experienced increase in RevPar of 1.4% during the fiscal 2019 fourth quarter and 1% for fiscal 2019. Meanwhile, competitive hotels in our collective markets experienced a decrease in RevPar 0.6% during our fourth quarter and an increase in RevPar of 2.7% during fiscal 2019 again compared to the prior periods. As a result we outperformed a competitive sets during the fourth quarter and excluding the Hilton Madison we outperformed the nation while performing in line with our competitors during the full year fiscal 2019. And finally breaking out the numbers for all seven of our comparable hotels more specifically, our fiscal 2019 fourth quarter RevPar increase was due to 1.7% increase in our average daily rate or ADR, partially offset by a slight decrease of 0.3 percentage points in our overall occupancy rate. For the full fiscal 2019 our overall RevPar increase was due entirely to a 1.6% increase in our ADR partially offset by an overall occupancy rate decrease of 0.4 percentage points. Finally looking forward a little bit here I do want to remind you that fiscal 2020 will be a 53 week year for us ending on December 31, 2020 and that extra week in December is no ordinary week but rather includes the traditionally strong, movie-going week between Christmas and New Year's Day and since the first week of our new fiscal year began on December 27, 2019 that means we'll have essentially two of these traditional strong movie-going weeks during our upcoming fiscal year. Now the last time we had an additional week of operations was during our 31 week transition period that ended on December 31, 2015 that additional 31 week of operations that year benefited both of our operating divisions but particularly our theater division due to a new Star Wars film that played and contributed approximately $17.4 million in additional revenues and $6.2 million in additional operating income to our final five week period and our transition period results. After interest expense and income taxes we estimate that the extra week of operations that year contributed approximately $3.6 million to our transition period net earnings or approximately $0.13 per diluted share. While there can be no assurance that we will realize similar benefits in fiscal 2020, it is important to note that our theater operations in 2015 did not include our two most recent acquisitions and we had a higher effective income tax rate that year. With that I now turn the call over Greg.

Thanks Doug. I'll begin my remarks today with our theater division. The word you're going to hear most often for me today is balanced. We've been in the movie theater business for nearly 85 years. As you know this business can be a real roller coaster. We joke internally that it seems like some days we are geniuses and other days well not so much. And for as long as we've been in this business there has been concerned for its future and yet we're still here entertaining millions. So when you operate the business like this we believe it is imperative that you take a balanced approach. Sure we care about each and every quarter but as you know we have a long-term perspective on everything we do. A balanced approach recognizes the grass doesn't go to the sky but also acknowledges that the sky is not falling either. So as I make my comments about our theater divisions fourth quarter and fiscal year you're going to hear what I hope you will agree with will be a balanced perspective. So let's start with our fourth quarter and fiscal 2019. As anyone who follows this industry knows it was a challenge. We all know that our industry was playing catch-up all year long after starting the year with a very difficult comparisons during the first quarter. We had a high hopes for the fourth quarter as we knew we had several blockbusters lined up in late November and into December and sure enough the Frozen, Jumanji and Star Wars films ended up being three of our top four films for the quarter. But we didn't count down was October and early November film comparisons to last year being as difficult as they were. Last year our top four films of the quarter all released during that same early time period and this year's film product just didn't match up. So let's look at the ledger from a balanced perspective. On the one hand attendance was down this year nearly 9% which in a high fixed cost business creates operating challenges that showed up in our numbers. In addition, the film slate was particularly top-heavy this year with our top 5 and top 15 films accounting for approximately 26% and 48% respectively, of our total admission revenues during fiscal 2019 compared to 23% and 42% for our top 5 and top 15 films last year. A direct result of that dynamic was an increase in our film costs as we generally pay more as the percentage of box office for the largest blockbuster films. Another potential negative is that we won't have an Avengers or Star Wars movie in 2020 which understandably has created some concern about how the 2020 film slate will perform compared to this past year. And of course all this is occurring at the same time the so called streaming wars begin to ramp up an earnest. So I get it if you're just going to look at those four items in isolation I could understand why sentiment seems to be negative at the moment. But let's look at the other side of the ledger and balance things out. Let's start with 2019 Box Office. It was the second largest Box Office in history. In fact the only problem was the largest Box Office in history was the year before when we're comparing it to. When you dig into the numbers you find that the single biggest difference between 2019 and 2018 was the holdover films from the prior year. In 2018 the 2017 Holiday Holdovers as 2 years ago there's going to get a little confusing because the names are almost the same. Star Wars 8 we just told the Star Wars 9 in 2017 Holiday Holdovers, Star Wars 8 and the First Jumanji with The Rock the greatest show and the greatest showman contributes significantly to January and February 2018 results the carryover. In 2019 so that was a year ago in 2019 Aquaman was really the only holiday holdover from the prior year. According to data from NATO the National Association of Theater Owners this was more than the $300 million difference in Box Office revenues this year. That's the vast majority of the difference between the two years and just since we're talking about history if you want to think about how good we are predicting as an industry we sat around at the end of 2017 and said, well 2018 doesn't have the biggest latest 2019 and we were sort of saying well we can't wait to get to 2019 and yet as it turned out 2018 was actually the better year and here we sit again and we're saying we can't wait to get to 2021 and yet who knows but let's talk about that film slate. Looking ahead to the film slates for 2020 and ‘21 we see a strong mix of both established franchises along with a lot of original films as well, on paper it also looks like we will have likely, we will likely show more not less widely in our theaters in 2020. And it appears we will have a wider range of options and genres as well. We believe that is exactly what moviegoers are looking for and if the film slate turns out to be more balanced in the year and less top-heavy then that may have a favorable impact on our film costs. Again time will tell. We're off to a good start in fiscal 2020 thanks to stronger Holiday Holdovers and several films mentioned in our press release. But we know we will have some difficult comparisons ahead. I can't predict how all these films will perform. But neither can anyone else. We're looking forward to seeing how the slate unfolds. And don't underestimate that aforementioned 53rd week and the benefit it will have on next year's fourth quarter results. I know it's easy to ignore that extra week since it only comes once every five to six years but the impact is real and every year we report in between has one less every year we report in between has one last day than everyone else. Doug thanks for reminding us of that. And I think the same balanced approach would be appropriate as we consider the impact of streaming on the movie theater business. NATO also recently published some very interesting numbers on this topic as well. It may have come as a surprise to some but films grossing under a $100 million accounted for essentially the same revenue at the Box Office in 2019 as they did in 2018. As the theory goes, these are the exact type of movies that streaming is said to be harming. Another study has shown that people who tend to stream movies also tend to be more frequent movie theater goers as well. My point is that there is a lot to learn yet regarding the impact of streaming on all forms of entertainment not just movie theaters and keep in mind in the end we're in the business of out of home entertainment. I know it's a cliche but my grandfather would always remind us that there's a kitchen in every house but people still go out to eat. It's our job to offer an experience and a value proposition that keeps movie going at the top of our customers list of things to do when they get out of the house. When viewed in that light we offer the cheapest form of out of home entertainment and I would argue that is our competitive advantage. So let me get off my soap box for a moment and get more specific to Marcus leaders. While over our results Doug share with you we want them to be and you've been hearing about all the challenges let's balance things out once more with some of the wins we experienced during the fourth quarter and fiscal year. Let's start off with our continued out performance. We've now outperformed the industry for six years in a row and 19 of the last 24 quarters. That is no easy accomplishment and by definition is getting harder every year as we near the later innings of our recent capital investment cycle. Yet with the help of a favorable film mix and the continued efforts of our tremendous leader team we once again outperformed in our fourth quarter and fiscal year and that's not counting Movie Tavern which also outperformed during the 11 months we owned them during 2019. Movie Tavern is another example of needing to take a balanced perspective. These theaters perform better in 2019 than they did in 2018 under previous ownership but the weaker film slate was a challenge and as you well know the labor market continues to be our other challenge and given the Movie Tavern business model the labor challenges are accentuated at these theaters. We've been very focused on developing tools to help our managers manage their labor costs efficiently while at the same time introducing technology like the order your food from your app or kiosk innovation that we introduced at our new movie Tavern by Marcus theater in Brookfield Wisconsin and are testing and select theaters in our circuit. Overall the integration of the Movie Tavern theaters into our circuit continues. We still have a lot of work to do to get these theaters where we want them from an attendance, margin and service level perspective but our capital improvements combined with our innovative pricing, marketing and loyalty programs are having a noticeable impact on attendance at these theaters another 2019 win. Finally, I'd be remiss if I didn't recognize the success our team has had executing strategies that resulted another year of meaningful increases in our average ticket price, and average concession food and beverage revenues per person. And as you know while a portion of the ticket price increase was due to a change to tax on top we've been accomplishing the majority of our per capita increases not by raising prices but rather by making investments in amenities our customers should benefit from and are willing to pay for such as premium large format screens and expanded food and beverage outlets a true win-win. Looking ahead, Doug shared with you that we may spend as much as $45 million to $60 million in this division during fiscal 2020 and we would do that in a number of ways. We're under construction with a new theater in Tacoma Washington that is expected to open during our fourth quarter. In addition I mentioned that we are nearing the end of our amenity site investment cycle we still have opportunities to add DreamLounger recliner seats and our signature food & beverage outlets to several additional theaters during fiscal 2020. We also have identified several potential opportunities to convert existing screens to SuperScreen DLX auditoriums during fiscal 2020. And of course we'll always spend the necessary maintenance money to keep our theaters looking great for our valued customers. So now I'll end my comments in the theater division where I began as I move ahead we'll continue to evaluate our business opportunities and challenges with a balanced perspective. Our team will continue to manage the short-term environment while still focusing on our long-term strategies that served us so well for the past nearly 85-years. There will be ups and downs but I'm confident that Rolando Rodriguez and his team are up to the challenge. With that, let's move on to other division, Hotels and Resorts. You've seen the segment numbers and Doug gave you some additional details. Obviously, our reported results in both years were impacted by the Saint Kate. And Doug went over the various nonrecurring items with you. We felt it was very important to provide investors with the information necessary to understand not only how this particularly hotel impacted our results but also a clean look at what our core operating performance was for the rest of our hotels and resorts business. So for the quarter and the year. What we did with this hotel, closing it down for half of the year then reopening it as an unbranded arts themed hotels' extremely rare. And when you only have eight hotels in your own portfolio, something like this understandably has a very noticeable impact on your reported results. As a result, I think the most meaningful numbers Doug shared with you were the fiscal 2019 results of this division when you exclude Saint Kate from both years. As a reminder, excluding that hotel, our fiscal 2019 hotel operating income would have increased by 1.2 million or 7.6% during fiscal 2019 compared to fiscal 2018. As our press release indicates, that year-over-year improvement at our comparable hotels and Management Company are due to increased revenues and a continued focused on cost controls and operating efficiency. The increase in revenues was directly related to another increase in group business with several of our hotels during the fiscal 2019 fourth quarter and full-year compared to the prior year periods contributing to our increased RevPAR performance for our comparable company owned hotels. This increasing group business also contributed to an increase in our banquet and catered revenues as well. Looking to future periods. Our group room revenue bookings for future periods in fiscal 2020 commonly referred to in the hotels and resorts industry as group pace is running ahead of our group room revenue bookings for future period last year at this time. Banquet and catering revenue pace for fiscal 2020 is also currently ahead of where we were last year at the same time. Not surprisingly, the fact that Milwaukee will host the democratic national convention in 2020 is certainly contributing to our increased group pace for next year. And hosting a convention with this level of international prominence is already leading to increased lead activity for future years at our convention and visitors bureau. When you consider that Northwestern Mutual's annual convention is moving to August to accommodate the DNC and the rider couple we held about an hour north of Milwaukee in September. The 2020 fiscal year looks like it maybe an event or veneer at least here in Milwaukee. Nationally, the pace of RevPAR growth has been declining over the past several years in many published reports by those who closely follow the hotel industry suggests the United States lodging industry will experience very limited overall RevPAR growth or limited -- try that again --. The United States lodging industry will experience very limited overall growth in RevPAR in calendar 2020 with some markets possibly experiencing small declines. Whether the relatively positive trends in the lodging industry over the last several years will continue depends in large part on the economic environment as hotel revenues have historically tracked very closely with traditional macroeconomic statistics such as the gross domestic product. Also, I'll be remiss if I didn’t double back to the Saint Kate for a minute. In fiscal 2020 it is our job to begin delivering on the investment we made in this new hotel. As an independent hotel, we don’t have a brand to rely and to create name recognition, so that creates unique challenges we are looking to overcome. We are spending an extra effort marking the Saint Kate in order to increase awareness of this very special new hotel in Milwaukee. And as the press release notes, we are particularly pleased to recently to be named "one of the country's best new hotels" by USA TODAY 10 Best Reader's Choice Travel Awards. Additionally, the reviews we are getting from both the media and our customers is nothing short of outstanding. With over 200 rooms, group business will play an important role in the hotels future success. As you know there is a lead time for booking group business and while our sales team is pleased with the traction they are gaining as they sell this hotel future groups. We still have a lot of work ahead of us to get this hotel where we want it to be. Our entire team is focused on making that happen. And of course, improving operational efficiencies is also at the top of our list of this hotel as well. Speaking of our team, during our fiscal 2020 first quarter, Michael Evans joined us as the new President of Marcus Hotels and Resorts. Michael is a proven lodging industry executive with more than 20-years of experience in the hospitality industry with companies such as Marriott International and MGM Resorts International. We believe that Michael proven development operating and leadership experience with its strong roots in the hospitality industry make him extremely qualified to build on our hotels and resorts divisions' long history of success. Supported by a strong and experienced senior leadership team. And while we believe Michael's background in development, should help our growth efforts in the years ahead. He and his team will also be cherished with taking care of the assets we already have. With that in mind, our fiscal 2020 capital budget includes dollars later in the year for major renovations that we will begin at two of our largest hotels; the Pfister and the Grand Geneva. These project will carry over into 2021 and they're vital to maintaining these two hotels as the premiere properties in each of their markets. With that, we shared a lot of information with you and we want to get to your questions. So, let me end by noting that once again our Board expressed confidence in our future yesterday by raising our quarterly dividend rate by another 6.3%; our sixth dividend increase in the last five years. With an extremely strong balance sheet, we believe we are well positioned in not only whether any strums that may lie ahead but to also invest in the future. With that at this time, Doug and I would be happy to open the call up for any questions you may have.

Thank you. [Operator Instructions] We'll go first to Eric Wold with B. Riley. You may proceed with your question.

Thanks and good morning guys.

Hey, Eric.

A couple of questions. I guess one, kind of a for each the two division I guess. Doug, as you think about the 2020 CapEx guidance of the theaters of 45 million to 60 million, how much of that would you kind of say as toward holding and maintenance versus ROI generating activities. And then, you obviously and what point would you say here in the cycle and also will be covered now in the mix but shifts although. So, maybe going to think about both the legacy theaters, legacy market theaters and Ehrenberg versus Movie Tavern and where are you in that cycle in terms of where do you expect that CapEx and the decline meaningfully in the theater side?

Sure. Well look, I would say of that we gave a range for theaters of 45 to 60. And I will tell you, to get to that high-end that'll take a bunch of projects to accelerate and move pretty quickly. So, I don’t know they'll get to that high as when we provide the range. I'd say probably half and half in terms of the mix. We've got several legacy locations that we're taking a look at in terms of ones that we still haven’t done DreamLounger's or some other amenities related to that. We're working on a Movie Tavern location right now as we speak. There is another one or two that we're taking a look at is and as Greg mentioned, we do have a new build in that mix as well. So, keep in mind that there are some dollars in there for a building in Tacoma, Washington that we're. And it includes landlord contribution as well but we have obviously components that we have to contribute to. So, I would say it's probably if we end up on the low-end of that range, it'll probably be about 50/50 between we'd call ROI and maintenance. Maybe eschewed maybe 60/40. If we end up on the high-end of the range, it'll be because there's more ROI projects too. Because the maintenance CapEx is pretty consistent in this division that can and ranging in that $10 million to $20 million range depending on how many projects we have to do.

Okay. And then, how much of that is the new work which's going on new build?

It's we're not going to give you the exact number but it's in the millions but its single millions.

It's a lease.

It's a lease and so that -- so there's a significant landlord contribution but we start to put some of the FFE in and some additional dollars as well. So, it's in that range.

Okay. And then secondly on the hotel side, obviously Milwaukee markets getting a nice news this year from a number of things you laid out. I guess, which hopefully rising tide this -- this all boats there, but I guess other than that what do you see in kind of competitive environment in your key markets, compares being more rational as people kind of constantly favored in towards the end of the cycle there. And then, lastly on Saint Kate. Now we're kind of six months past opening, what are your thoughts on kind of where your occupancy in AER levels are versus which you would have thought given you acknowledging this is a new brand, you're going to have to build from scratch.

What are we seeing in other -- or look by the way I want to say Milwaukee. Remember it, as we pointed out in the call. I do believe it's not just a one-year thing. I mean, we should look at it, it's a good year. There's no double about it. But we will be increasing the size of our convention center here. Although the state passed a more obligation gave us some more obligation, so that's in the works. We and again that we know that, we studied other markets that have had things like DNCs and seen their long-term halo effect and something like that has for a market like ours and whereas we're already seeing increased activity at our convention visitors bureau and that's long-term business. So, I just want to point out that we're we have a significant investment, we see a long-term benefit. Look at, we are seeing like everybody else, lots of buildings in the different markets. We tend to be central city. So, they are getting absorbed but it's not as robust as it was five or six years ago, when we are receiving high single-digit RevPAR increases as not as the market -- as the industry is seeing, its later it seems to be later in the cycle now we at the point where we're going to start to see a reacceleration in the cycle. Again this is it, really will just all depend on the economy. And if the economy is strong and then the hotel should all be okay but we are seeing building in certain markets. But like Chicago, they had a very rough year last year and this year it's supposed to be a good year for their convention market what should be good for hotels but they've had a lot of product. So, again it's just is market dependent as well. And Eric, and you had very more specifically asked me your Saint Kate question?

Yes. just now that we're kind of six months past the opening of that, kind of where the -- has been kind of demand occupancy ADR been relative to what you thought acknowledging that you are building a new branch from scratch?

Yes, I think we will. What we're seeing is that we're getting the rate we wanted. For the most part, we are our occupancy is not where we wanted to be yet. The most promising thing we're seeing is that our food & beverage all that's not really where we make our money. We make money on the heads and the beds. But our food & beverage is far and away ahead of our expectation. Now getting it's not really going to drive the bottle line so much. But what its showing is we have a lot of being with our presence in Milwaukee, we get great press and great coverage and when you do something like business markets. So, locally everybody knows about it as it's almost the talk of the town. It's really very exciting, you walk in there and there is a buzz in the place because and we sit in the theater district and with all the theaters going, the place is hopping. And so, we were very happy to see that. The challenge again is knowing people outside Milwaukee when they look they say where they want to stay. It's they don’t know what it is yet and it's just getting things like being on that 10 Best list and getting in kind in that. That takes up to a year to start to populate those and then when somebody googles best hotel in Milwaukee - we show up. And the algorithms in the sites, the Expedia, the Travel, the TripAdvisor, the World; we need to have a certain number of reviews. And so doing that, this is now really a marketing challenge for us in getting the word out there. And look at this time of the year and frankly the fourth quarter and sort of to what is or not strongest time. So, just in this market it's that we're much better in the summer. So, we open midsummer and so we just haven’t gotten that traction that we need here. That's much easier when people write in a lot of nice things about you.

Thank you.

Thank you. Our next question comes from Jim Goss with Barrington Research. You may proceed with your question.

Thanks. I might as well go on with Saint Kate since you're there. Would you say development of Saint Kate was a sort of a response to the challenge of the weakest of three properties in that market or was it an attempt to create a new franchise that you could recreate and franchise that template in other markets?

Well, I'd say yes. I mean but I think it's even more than that Jim. Yes that was our obviously one of, that property needed, it needed a new game plan but also it was even if it's just for that property the idea of tapping into this idea of experiential travel and what the traveler of today is looking for certain set of the travelers they want to come to a market, learn something about where they are, experience something different. That is a big trend in our industry. So even if just for that property now if it should work, well that would be great. Let's we would love to do it again but let's get the first one working.

Okay. How long is the evaluation period do you think before you figure out? I know it's still early as you've just been talking about it. There's a higher period before you figure out. Whether there's a market for it elsewhere?

I think you are exactly right. You're exactly right. It could take up to that long. I mean if something happens and it really goes crazy this summer which I have all the hope in the world that could happen well maybe it'll be more accelerated but I think it could be up to two years we really figure out what we have.

Okay and generally in the theatrical space it does seem we're moving to the end of the CapEx cycle as you've been discussing. I've wondered what direction in terms of capital allocation the theater operators are going to take? One of the options is to buy additional chains and you've already been at a leadership of doing that sort of thing as you get, do you think you have continuing opportunity to get another Warner Brother Movie Tavern and if you don't at some stage are you likely to be prioritizing share buybacks or additional dividend gains? Where you go in the capital allocation maybe this is a Doug question.

Yes. I mean and you've seen, Jim it's a really good question and I'm not sure we quite know the answer yet of what because there's a lot of different avenues this could go. You've seen the chart in our prepared materials and where we've been allocating our capital over the last six years and it certainly has been very theater focused and with a large chunk of it probably a quarter -- probably 25% of our capital going towards those two big acquisitions that you alluded to. Certainly that we will be selective about that. We always have been. We're not just a growth for growth's sake company we are smart growth company and so if there were further opportunities that's still on our radar, you're right that the piece of that the allocation over these last five, six, years that has gone towards those amenity ads primarily but the DreamLounger the large format screens and the food and beverage that piece is coming down as I just shared with you earlier that still are some opportunities for us to spend some dollars in 2020. But they're just less of those projects and so that piece is starting to come down and as you know, I mean you saw it in our numbers this year. We generate so much cash in our businesses that's a nice problem to have because our balance sheets is in incredible shape. So my best answer is we have lots of options. If something and the word we love using this company is optionality. We love to have those different options. So we're opportunistic and if we see an acquisition that we might like, great. If we don't, if we see some opportunities in the hotel business where we could start to allocate some capital and growth great. Maybe there's we've alluded to in the past about potential opportunities to kind of related type businesses. So we'll keep our eye open for things where we could potentially further invest in businesses that or things that make sense because of hitting some of our core expertise and then returns of capital. You specifically mentioned buybacks that certainly share repurchases is a tool we've used in the past. We've also used dividends in the past. We just raised our quarterly dividend. We've used special dividends in the past. I can't commit to any one of those but those are all options that are always on the table for us.

Yes. I mean I'd build on that just a little bit and just simply say look at, our strategy frankly it's really not that complicated. It starts with have a really strong balance sheet and then what we're able to do is and we have great people and take advantage of the opportunities that present themselves wherever they might be and as I think Doug would have laid it out in that orders our goal is to invest capital and properly allocate capital and at the same time provide a return to our shareholders and then we don't see the right opportunity for that capital well then we'll make a decision about the best way to return capital. But that's our game plan and I said I don't think it's very complicated but not all you need to do either.

Okay and maybe one final one for you Greg. In a year with fewer apparent blockbusters, do you typically see some of the $100 million movies becoming more than that and sort of filling in that gap outperforming expectations something that might mitigate the decline in the overall Box Office that seems like a potential challenge this year?

Absolutely that can happen. At the end of the day it will just depend on how good the movies are and I will tell you, look I've been heartened I have seen so many good movies lately so there's been this concern about the quality of, would there be a degradation the quality of the product. I mean I've seen I bet I've seen 10 to 15 movies in the last couple of months all of which I thought were really good. I went to see Gentlemen last night. I really liked it. I saw the Harlequin movie last week. I thought it was great. Richard Jewell was great. Parasite was great. 1917 cinematic masterpiece. I mean I just, I mean I've seen so many good movies which really heartens me in a long run for our business. I cannot tell you what's going to happen tomorrow. If I had that crystal ball I guess I'd probably be on a very nice island somewhere well it's about six degrees here but it is in the long run to see the quality the product hold up in the face of PPV is gives me and I look at this business on a balanced long-term way makes me feel good about it so.

Okay. Thank you very much.

Thank you. [Operator Instructions] Our next question comes from Mike Hickey with Benchmark. You may proceed with your question.

Hey Greg and Doug congrats on your quarters guys thanks for taking my questions. Appreciate it. I guess maybe just follow on Jim's question a bit, the slate is less obvious this year doesn't mean it's going to be down but I think that's probably the direction most people think. Do you think, I guess in this sort of environment where the slates not as obvious, do you think that could be the catalyst to maybe facilitate a deal with some of the OTT providers that are obviously creating pretty compelling content and I'll maybe were close last year with the Irishman maybe we weren't but I guess is this the right time maybe to show enough flex in terms of economics and windows to get a deal done for the industry both industries?

I mean look, I think, I'll say the same thing that everybody in our industry has been saying. We are open to a deal with an OTT but we have to have a window. We have to have a window that is what maintain, that is one of the things in addition to our significant investment in making this experience, such a great experience just generally. That window is one things that maintains the value of our product upstream. If they shorten the window they degrade the value because the customer says, well I can we are in a battle against the couch. I said that a bunch of times and short of the window the more attractive that that couch becomes then they, it degrades the value of what we're trying to sell and you can already see one of the reasons that $5 Tuesday is so successful we've talked about this before is because it is and the reason the studios like it this is because in a way I don't know what it brings customers back to the theater who had sort of had decided they liked the couch better but at five bucks I say the theater is better. I'll tell you an interesting statistic that I just saw in our numbers and I looked at our attendance and I looked at our attendance on Tuesdays compared to the rest of the week and if you look at take 2018 and we had a big pop if you look at 2017 and 2019 our legacy theaters you have a steady base of theaters, our Tuesday attendance was identical and yet the attendance from 17 to 19 actually dropped on the rest of the days and so look at that and yet we still outperform the industry and it's all the good things that we've been talking about but what you see is the resiliency of that customer and what they see is the value and so they have to be very, so we're very open to the idea but and we think it will be great people to play their product and we would welcome their product into our theaters. They make some great product but we have to understand what the underlying fundamentals of what the foundation of our business and make sure that stays in place.

Okay. Thanks Greg for the color. Appreciate it. Both of you made a pretty big statement about the extra week, a powerful it could be for your business. Doug you gave some math obviously you are certainly smaller but maybe the movies were better and gave that last but is that sort of little headwind, little tailwind is that sort of the right number we should be thinking about adding to our malls for the year 2020?

Well, as everyone who listens this remembers my forward-looking statements comment to begin this whole thing. Yes, I mean I think that that's why we provided that numbers for at least provide some perspective and I do appreciate that you're recognizing that in that particularly the set of numbers we had Star Wars in that and this year’s we have to third week we won't have a Star Wars but it's still a big week and sometimes I think we could show Greg's home movies and maybe do pretty well too during that week and so look, I think that that's those are reasonable placeholders to at least say that in a similar week we did that amount of business keeping in mind that the dynamic and the reason why it's so profitable is because it's basically revenues and variable costs. All the fixed costs are already accounted for on a monthly basis in our numbers and so there's no additional fixed costs that go against it. So the margin on these additional incremental revenues is fairly significant and that's why you see such a significant impact and we are not in the business of projecting specific numbers for what week could be. We obviously have some thoughts but we thought by at least providing what it was in 2015, it would least give you a nice benchmark to put in place.

Okay. Thanks. Last question for you guys obviously M&A has been the great instrument you've created some serious growth and value. I guess when you look at sort of the private theater market, theater owners, do you get any sense of a greater willingness to want to sell when market conditions are tough or when market conditions are great or is it sort of not, no real correlation? I'm just wondering how they behave in terms of maybe looking to sell a difficult market versus a good market. Thanks.

I think that it really is, it's not -- I don't know if necessarily correlated. I mean the markets we've had some bumpy quarters over the last number years but fortunately the markets are pretty good. So it's hard to really say where everybody's heads are at right now but you have to remember this is especially when generally the people we're talking to at this point, it's not always about economics these people have been maybe been in business for generations. It's a family business. They love the business and so they may look at it a little differently than others and they may and they also have longer-term perspectives too and so there may be more comfortable struggling through some of the challenge because they say as they said as I said as I started the onset of my comments literally my dad tells me every you can't remember not being worried about the business, he's been with it for 85 years and yet it seems to be something that we're able to deliver on and provide a great product and something compelling to the customer likes.

All right. Thanks guys.

Thanks Mike.

Thank you. At this time it appears there are no other questions. I'd like to turn the call back over to Mr. Neis for any additional or closing comments.

Thanks once again everybody for joining us today. We really appreciate it. We look forward to talking to you again in a couple months in late April when we release our fiscal 2020 first quarter results. Until then thank you and have a great day.

Thank you. That concludes today's call. You may disconnect your line at any time.